Area brokers tepid about office market in 2014

In Stamford: Bridgewater proposal plays crucial role

Updated 10:31 am, Friday, January 3, 2014

While the move of the world's largest hedge fund to the 80-acre Harbor Point project would create a loud sucking sound from Westport's economy, it would create immediate results for Stamford, Ritman said.

"That will set off a chain of events. You'd have a new image for Stamford. It's such a powerful sign. It does so much for the PR of Stamford," Ritman said. "There's no doubt that their coming would be a big shot in the arm. You'll see other groups that want to be around them."

South End or elsewhere

Stamford Mayor David Martin said in November following his election that he hoped to re-establish a boatyard on the former site of the city's last working marina and persuade BLT and Bridgewater to abandon plans to build a new headquarters on the 14-acre peninsula.

The Gateway complex, another BLT project with 474,000 square feet of commercial space on 5.4 acres, would allow Bridgewater to build a distinctive headquarters and has the strong selling point of being adjacent to the Stamford train station, Martin had said.

Either way, an announcement in 2014 that Bridgewater's move to Stamford is official might create a quick bump in the city's economy and its office market, but it could be some time before the company moves, according to James Fagan, senior managing director of Cushman and Wakefield in Stamford.

"I guess all options for Bridgewater are on the table," Fagan said. "The thing to keep in mind is that building a new HQ for Bridgewater is probably at least a five-year proposition. So the effect on Westport and Stamford both is a ways away."

Deloitte's move to Financial Centre

Building and Land Technology can count itself a winner in 2014 with the anticipated move of Deloitte from 333 Ludlow St., a Stamford office building owned by the developer, to the Financial Centre at 695 E. Main St., in Stamford, a 614,000-square-foot office complex, also owned by BLT.

"They should move sometime in 2014," said Ritman, whose company represents the property.

The arrival of Deloitte at the vacant building will attract other tenants, he said, adding that a number of companies have toured the property.

"It's showing incredibly well. When the building is completely renovated in 2014, it's really going to shine and pop," Ritman said.

The arrival of Deloitte or any other large tenant at BLT Financial Centre could be the spark that ignites the interest of other businesses in the sprawling building, according to Fagan.

"Conventional wisdom is that 695 E. Main would not entertain offers to lease space if the tenant was (taking) less than 50,000 square feet," he said. "Once they open the building (presumably for Deloitte), however, it would make sense that they lease space to tenants of any size."

`A few big tenants'

There is another reason for optimism among Stamford office building owners in 2014 -- Pitney Bowes will be looking for leased space in the city.

But that will mean that a 400,000-square-foot office building will be coming to the market in 2014, according to Ritman.

"There are a lot of large blocks of space on the market. We need a few big tenants from Manhattan to migrate to Stamford to take some of these large blocks of space," Fagan said. "If we need to absorb the space in 5,000 square foot increments, it will be a while."

Class A office buildings in the area of the Stamford Transportation Center have healthy occupancy levels, in spite of asking rents in the mid-$40 range, and should continue to attract businesses in 2014.

But George Comfort & Sons, which owns the newly reconstructed Shippan Landing complex that offers 780,000-square-feet of space overlooking Long Island Sound, will have to attract tenants that prefer a water view over the bustling downtown district, Ritman said.

"They've made it into a premier office building. The question is do groups want to be on the water. If someone needs to be near the train, it's going to be a tough sell," he said.

Greenwich's prospects

The prospects for the downtown Greenwich business district, where the vacancy rate is more than 20 percent, should improve in 2014 as the economy picks up, according to Ritman, but with asking rents in the mid-$80 range, office buildings there will continue to cater to financial service and hedge fund firms.

"In downtown Greenwich, you have multiple groups chasing space. That wasn't the case two years ago," he said, commenting that the asking rent for the former General Reinsurance headquarters on Steamboat Road remains in the $100 range. "It shows beautifully."

But on the west side of Greenwich, building owners will continue to face challenges, according to Ritman.

"Companies would rather be in downtown Stamford than western Greenwich," he said.

While there might be some opportunities for the Stamford market in 2014, overall office vacancy levels will remain much the same as they were in 2013, according to Thomas Pajolek, executive vice president of the Stamford office of CBRE, but several deals are in the works as 2014 begins.

"We may start 2014 with an uptick. But I don't think the vacancy rate will change much in the year," he said, commenting that the financial services industry -- what had been the driving force lower Fairfield County's office market -- will continue to find ways to operate without additional space. "The fundamentals are unchanged. Until companies start to hire, we'll not see a change."

Many financial services took a hit in the recession and have not fully rebounded, while others are using technology to make better use of their office space, Pajolek said.

"I suspect there will be another market segment that will fill the void," Pajolek said.

`Field of Dreams'

Fagan is more upbeat about 2014, believing that an improving economy will result in more interest in the region's office real estate.

"We believe that the vacancy rate will decline significantly over the next 24 months," he said. "Furthermore, history would suggest that there will be at least one major corporate relocation into the market given the wonderful opportunities that we have waiting. It's a bit of `Field of Dreams' ... We have built (and rebuilt) the product, the corporations will come."

Much of the region's office building inventory was built in the 1970s and 1980s, and some of that property is obsolete, requiring owners to re-think the future of their buildings. Because of their condition and their distance from transportation centers, many of those buildings are under-utilized, and some could be converted into other uses in 2014, according to Fagan.

"When renovating product, the ownership has to determine where the most market demand is and renovate to meet the market," he said. "As traditional office buildings are renovated, ownership will have choices to make between office, medical and residential depending on market demand for that product."

Given the high office vacancy rate in lower Fairfield County, Fagan said he doubts if BLT will build its Gateway office complex near the Stamford Transportation Center in 2014 without significant pre-leasing, but it has given itself a leg up in terms of timing by building the parking structure.

Farther to the north, Class A office complexes along the Route 7 corridor in Wilton and the north end of Norwalk should see a good year as they benefit from updates and rental rates lower than those in the Greenwich-Stamford area, Pajolek said.

"It's good product and priced as good value," he said.

Fagan said he is not overly concerned about vacancies in Wilton, commenting that it will be absorbed by existing tenants in the marketplace.

`Aggresive deals'

in Danbury

Todd Payne, president of Danbury-based Goodfellow-Ashmore, said 2014 should bring the arrival of several businesses, putting a dent into a combined 30-percent vacancy rate in seven major office buildings in Danbury, including the Matrix Corporate Center at 39 Old Ridgebury Road, Lee Farm Corporate Center at 83 Wooster Heights Road; Plaza West at 100 Mill Plain Road; East Ridge Executive Office Park at 101 E. Ridge Drive; and Ridgebury Corporate Center at 40, 42 and 44 Old Ridgebury Road.

The typical asking rent at those complexes is in the $22 to $23 range, Payne said, far lower than the mid-$80 range in the Greenwich central business district and the high $40 range in the Stamford CBD.

"The landlords are in position to make very aggressive deals, and in my opinion that will happen. They have large contiguous space available. Danbury is going to land some good deals," he said. "Some will come from within (the Danbury region), but we'll pull from Westchester County (N.Y.) and lower Fairfield County. Anyone who has a lease coming up in one to three years should be looking at this market. There's a very good quality of life here and a good work force."

The prospects for office space in Greater Danbury should be on the upswing in 2014, Fagan said, and much of it will come from smaller businesses.

"Danbury will never have the velocity of tenants that the lower part of the county has. The good news is that there is no new space coming out of the ground. The bad news is that the market is highly dependent on a few large tenants, and if they downsize or relocate it will have negative implications for the market."

Office buildings in the eastern part of the county will start to see some absorption of space as the economy improves and companies make long-term commitments, said Jon Angel, president of Angel Commercial Real Estate in Fairfield.

"There should be absorption of space because the rental rates have remained attractive for tenants, and this won't last in future years," he said. "The vacancy rate in the Greater Bridgeport market (Bridgeport, Fairfield, Monroe, Shelton, Stratford and Trumbull) has hovered around 15 percent and of that, R.D. Scinto has approximately 237,000 square feet of vacancy which is approximately 6.8 percent of the overall statistic. The landlords that have low debt or a cost basis that allows them flexibility with deal terms will likely be the beneficiaries of the deals in 2014."